The earnings calendar is home to a few interesting prospects as the Thanksgiving holiday approaches, including Dell Technologies (DELL). Dell stock had been working its way higher, showing some signs of accumulation ahead of a bullish move Friday that saw Dell clear a key resistance level.
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This Hedging Strategy Changes The Game For Managing Risk During Earnings Season
Dell still sells PCs and laptops, but it’s become a big player in the field of artificial intelligence as a provider of hardware, including servers that power AI workloads. Workloads are tasks performed by AI systems, which entails processing large amounts of data and performing complex computations.
Also in the technology sector, investors will listen closely to what CrowdStrike (CRWD) has to say when the company reports earnings Tuesday after the close. The FactSet consensus is for adjusted profit to fall 1% to 81 cents a share, with revenue up 25% to $982.8 million.
The stock has recovered well after a breakdown in July that saw the security software firm lose nearly 40% of its value. A faulty software update from CrowdStrike caused a widespread outage and resulted in the cancellation of 7,000 Delta Air Lines (DAL) flights. Delta sued CrowdStrike for $500 million. CrowdStrike countersued, blaming Delta’s older IT systems.
Dell Vies For Breakout
After a harrowing 50% pullback from May to August, Dell topped a 141.33 buy point Friday in higher volume. Dell could be right for a call-option trade, so long as the stock isn’t too far below or above the entry just before earnings.
Results are due Tuesday after the close. Look for adjusted profit to be up 10% to $2.07 a share. Revenue growth is expected to accelerate for the third straight quarter, up 11% to $24.7 billion.
When Dell reported earnings in August, shares popped 4% after the company said AI server sales jumped 82% sequentially to $3.1 billion. AI sales are part of Dell’s Infrastructure Solutions Group (ISG), which makes servers and systems for data centers. It’s Dell’s fastest-growing unit. Total ISG revenue grew 38% to $11.65 billion.
In an interview earlier this year at SXSW 2024, CEO Michael Dell told Patrick Moorhead from Moor Insights & Strategy that AI is still nascent and that data center capacity will have to expand by 100 times from current levels over the next 10 years.
Watching Workday And Burlington
Separately, results from Workday (WDAY) will also be out late Tuesday. It’s been a bit of a laggard in the enterprise software group with a Relative Strength Rating of 56. Nonetheless, Workday is in position for a breakout try after a heavy-volume move above its 10-day moving average Thursday.
Workday boasts a strong record of earnings and revenue growth. The stock gapped up sharply on Aug. 23 after the company reported better-than-expected bottom-line and top-line growth. Investors were also encouraged by comments from CFO Zane Rowe, who said the company’s adjusted operating margin will expand to 30% in the 2026 and 2027 fiscal years. That was up from a prior forecast in September 2023, where the company said it was targeting a 25% adjusted operating margin.
Meanwhile, after a string of positive earnings reports in the retail sector from Walmart (WMT), TJX Companies (TJX), Ross Stores (ROST) and Gap (GAP), attention turns to top performer Burlington Stores (BURL). Burlington gapped out of a cup-with-handle base Friday, with earnings due early Tuesday.
It’s another retailer with a consistent track record of growth. Quarterly profit is seen rising 58% to $1.55 a share, with revenue up 12% to $2.55 billion. Annual return on equity is stellar at 44%.
Options Trading Strategy
A basic options trading strategy around earnings — using call options — allows you to buy a stock at a predetermined price without taking a lot of risk. Here’s how the option trading strategy works, and what a call-option trade recently looked like for Dell stock.
First, identify top-rated stocks with a bullish chart. Some might be setting up in sound early-stage bases. Further, others already might have broken out and are getting support at their 10-week moving average for the first time. And a few might be trading tightly near highs and refusing to give up much ground. Avoid extended stocks that are too far past proper entry points.
A call option is a bullish bet on a stock. Put options are bearish bets. One call option contract gives the holder the right to buy 100 shares of a stock at a specified price, known as the strike price.
Once you’ve identified a bullish setup in the earnings calendar, check strike prices with your online trading platform, or at Cboe.com. Also, make sure the option is liquid with a relatively tight spread between the bid and ask.
Time The Market With IBD’s ETF Market Strategy
Look for a strike price just above the underlying stock price — that’s out of the money — and check the premium. Ideally, the premium should not exceed 4% of the underlying stock price at the time. In some cases, an in-the-money strike price is OK as long as the premium isn’t too expensive.
Choose an expiration date that fits your risk objective. But keep in mind that time is money in the options market. Near-term expiration dates will have cheaper premiums than those further out. Buying time in the options market comes at a higher cost.
Dell Stock Option Trade
When Dell traded at around 143, a slightly out-of-the-money weekly call option with a 144 strike price and a Nov. 29 expiration came with a premium of around $7.25 per contract. That was 5% of the underlying stock price at the time and just above the 4% threshold of IBD’s strategy.
One contract gave the holder the right to buy 100 shares of Dell at 144 per share. The most that could be lost was $725 — the amount paid for the 100-share contract. To break even, Dell stock would need to rise to 151.25, factoring in the premium paid.
The expected move in the options market for Dell, based on the at-the-money strike price of 143, was about 16 points up or down. This was determined by adding the at-the-money call premium to the put premium for the Nov. 22 contract, the expiration nearest the earnings report.
Follow Ken Shreve on X/Twitter @IBD_KShreve for more stock market analysis and insight.
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